Systematic Credit and Equity G-250 Trading Indicators for May 14, 2025
Inflation Data and Systematic Credit Trading
Good Morning: So as previously stated, "We do not expect this week's inflation data to impact the interest rate complex," and did not expect April CPI data to be materially higher than March results. Nor was Tuesday's US "Ready, Fire!, Aim" equity rally a surprise either.
As we have been attempting to communicate during earnings season, systematic credit trading does not involve any predicting or forecasting on the macro or micro level. The key to the less volatile systematic returns that the trading strategy generates is to trade the markets' reaction to earnings, economic data, and political rhetoric that moves markets and their individual constituents.
Now that I got that off my chest, today's US Producer Price Index (PPI) may show a tad more movement than yesterday's CPI movement.
And while yesterday's market reaction to "lower than expected CPI price movement" stoked a rally (that faded) in S&P and tech stocks, the DJIA closed lower as United Healthcare (UNH) announced management changes at the top level that helped lead all of that index's consumer and healthcare constituents' equity prices lower.
And while our systematic approach relies only on reported data (corporate and economic), it also incorporates statistical relationships between economic, corporate, and survey data as they relate to each other and corporate earnings, cash flow, and balance sheets.
Tuesday's data will not impact JP Morgan (JPM), BNP (BNP), Apple (AAPL), Tencent (TENCNT), Caterpillar Finance (CAT), Airbus (AIRFP), Exxon Mobil (XOM), BP (BPLN), United Healthcare (UNH), Glaxo Smithkline (GSK), Pepsico (PEP), Diageo (DGELN), General Motors (GM), Mercedes Benz Group (MBBGR), Duke Energy (DUK), or EDF (EDF) quarterly earnings and cash flow. However, today's US PPI data may impact the above forward issuer cash flow and earnings.
Now if you are an equity investor/trader, none of the CPI/PPI or earnings data (other than for Apple) may be of consequence. The way equity risk moves today is "headlines" followed by selling or buying of equity futures, ETFs, and then "sit back and relax."
In the history of equity investing, the correlation between US reported and estimated individual issuer corporate earnings and respective stock price movement has never been as low as it is now.
However, if you are a global cash corporate bond trader (which remains 95%+ individual bond OTC traded), those 16 names (and the global debt market capital that they are traded daily) have a better than 78.5% correlation to reported results.
So the results of the largest issuers and where those issuers both invest and issue capital have a material impact on how those issuer debt prices trade.
The systematic approach to long/short individual bond trades simply captures those reporting and trading relationships at their most extreme valuations and turns those volatility points into credit trading P&L using finite math based on the ultimate outcome (i.e., there is a 99.8% chance the bond will mature at par, regardless of the market it trades in).
Tariff Headlines and Systematic Corporate Bond Trading
While it is becoming apparent that new tariffs and negotiations thereto have little if any US economic value in terms of domestic investment, employment, current inflation, or tax receipt, the immediate impact on global capital markets is becoming better stated.
Price/Earnings ratios are higher and credit spreads are tighter in capital markets outside the US. The reason is the marginal investment is away from the US (i.e., anti-President Trump Administration investment sentiment) into markets with less headline risk.
While there is still much to be resolved regarding where new investment for global industry will come from and which geographic region will see the investment, we are seeing the amount of non-US issuance of large issuer corporate debt gain significantly while large cap US supply is lower year over year.
In Europe, we saw another €7.5 billion of new supply from 6 of the world's largest issuers of corporate bonds, with deals from Pfizer (PFE) and Nordea Bank (NDASS) pricing today, while just 1 deal in the US today—Baltimore Gas & Electric (EXC)—sold $650 million of 10Y first mortgage bonds. While the Euro market is not supplanting the USD new-issue corporate bond market, it is becoming a far more viable financing option to the US than it has been since the Euro market's inception in 2002. The new capital flowing into Europe for the same issuers of debt that had been tapping the US market in prior years.
Inflation Readings and Interest Rate Calls
US core CPI rose 0.2% from March and 2.8% from April of last year. The CPI report showed declines in airfares, used cars, and apparel, but increases in furniture and appliances, which are largely imported. Since it's already May 14, we can say with reasonable certainty that US used car prices, airfare, and apparel prices will not be lower YoY in the May CPI reading.
While the impact of tariffs on inflation is less uncertain, survey and expectations data (which all precede actual reported CPI data) all suggest CPI prices are headed higher.
All of this should become more apparent over the next 2-4 weeks.
Earnings Season
Yesterday's earnings revisions to our credit trading model is providing more focus for future trading strategy.
Earnings season is 75% over. We still have yet to hear from retailers, certain auto companies, and Japanese and Canadian banks. What we have learned is simple: More of the world's largest issuers of corporate debt are adding net debt than paying it off.
Thus far, US banks and global non-financials have added $150 billion of net debt to $8 trillion of total debt ($6.4 trillion of net debt), or at a rate of just under 2.5% QoQ. At the same time, these 156 large global borrowers have paid out $350 billion in dividends and equity repurchases. That's an increase of $55 billion YoY.
This creates an enormous departure from the "long only" trading strategy the model has provided the roadmap for over the past 2 months.
Tuesday's US IG Credit Trading:
USD trading volumes were just below above normal on Tuesday even with $16 billion of G – 250 supply on Monday. Consumer discretionary was the most sold trading sector with McDonald's (MCD), New Toyota (TOYOTA), New Carnival (CCL) and Starbucks Corp (SBUX) were the most sold while Financials HSBC (HSBC), Citigroup (C) and Bank of America (BAC) were the most bought by end users. Dealers were neither net buyer or sellers of IG paper on Tuesday.
US CDX and US IG cash were -1.5bp better Tuesday with Auto and Energy bonds outperforming.
Attractive trading sectors
Attractive Long Trading Sectors: None: This is how are trading model works. As attractive as de- levering IG credit issuer credit spreads were on April 10 of this year only BBB-rated TMT, BBB-rated Yankee Euro banks have 10 or more bonds that are considered attractive long indicators by our trading model.
Attractive Short Trading Sectors: US Big 6 banks, Single A TMT, BBB TMT, Single A Energy, BBB Energy, Single A Consumer and both Single A and BBB Healthcare all have at least 10 attractive short trading indicators at Tuesday's closing levels.
For more details on each trading sector or individual secondary trading curve, please reach out.
Issuer News Tuesday
UnitedHealth Group Inc. has replaced its CEO, Andrew Witty, with former CEO Stephen Hemsley, and suspended earnings guidance, citing unexpected medical costs and challenges with its Medicare strategy.
United Healthcare (UNH) equity fell 18% after the announcement Tuesday.
U.S. IG Credit Valuation
US investment-grade (IG) credit is now "Slightly overvalued." To be clear, US credit has been "overvalued" according to our trading model for approximately 72% of trading days over the past year.
US credit spreads widened by +75 bp from November 12, 2024, when our trading model generated 1,121 attractive short trading indicators ($1.903 trillion) to April 10, 2025, when the model produced 828 attractive long indicators ($1.514 trillion). Since April 10, 2025, US spreads are roughly 25 bp tighter in both BBB and Single-A rated credit.
This is how systematic trading captures volatility trading points and produces significantly higher reward/risk results metrics in an automated analytic and trading process.
Global Equity Correlation to IG Credit Spreads
We have been noting that US 10Y credit spreads correlated with US equity price movement 86% of the trading days over the past 12 months, we also note that the IG CDX is just +4.3 bp wider YTD 2025 while the SPX is unchanged. Actual cash credit spread are still +20 bp wider YTD.
New Supply / Bond Maturities / Credit Fund outflows for May
Just one new G – 250 issuer on Tuesday, The $650mm Baltimore Gas & Electric EXC 5.45 06/01/35 sold @ 98/10 Year or (-4bp) inside of where our trading model output saw as attractive.
As of 13 Ma
New European Supply May 13, 2025:
Lloyds Banking Group PLC (LLOYDS A3/BBB+)
£750m Long 6NC5 Fixed (Oct. 16, 2031) at +125
ING Groep NV (INTNED Baa2/BBB)
€1.25b 11NC6 Green Sub Variable (May 20, 2036) at MS+180
DNB Bank ASA (DNBNO, A2/A)
€750m 6NC5 Green SNP Fixed (May 20, 2031) at MS+90
BMW Finance NV (BMW, A2/A)
€EU750m 6Y Fixed (May 20, 2031) at MS+90, €EU750m 6Y Fixed (May 20, 2031) at MS+90, €EU750m 9.5Y Fixed (Nov. 20, 2034) at MS+120
American Express Co (AXP, A2/A-)
€ 7NC6 Fxd-to-FRN (May 20, 2032) at MS+105
Nordea Bank Abp (NDAFH A3/A)
CHF175m 7Y Green SNP Fixed (May 27, 2032) at SARON MS+87
Euro Deals not yet priced
Pfizer Inc. (PFE, A2/A)
€ 4Y, 7Y, 12Y, 20Y
Caterpillar Financial Services Corporation (CAT, A2 /A)
CHF 4Y
About € 14 Bil total from 8 G -250 issuers.
Since the beginning of earnings season (April 14, 2025) 20 G – 250 issuers have sold 56 deals for €55 billion.
At the same time US big 6 banks have raised $41.35 billion in 9 separate USD transactions (21 separate bonds). 32 other G – 250 issuers have raised $76.4 billion in 90 separate offerings.
Systematic Trading Model Indicators – Tuesday
With new attractive short trading indicators being the only new trading indicators from our trading model on Tuesday, the indicator strategy changes materially.
Systematic Trading Strategy for Tuesday May 13
With 205 attractive short trading indicators representing 75% of all indicators across the board, systematic trading strategy is to increase short trading exposure daily.
Long Positions: Attractive bonds (or new supply) from issuers that have already reported results. However, issue size of above $1 billion is the sole indicator for fixed coupon bonds. Only Toyota new supply fit the above description from Monday's new supply – so no new additions on Tuesday.
Short Positions: Issuer bonds trading within 20% of their 52-week tight spread, where the underlying company is releveraging its balance sheet.
Systematic Credit Indicators
Systematic credit trading employs defined back-tested trading processes and portfolio construction algorithms based on issuer reported and market trading parameters. This clarity differentiates them from discretionary approaches, offering replicable and auditable methods. We target ±5 basis points of credit spread movement in minimal trading days, balancing return maximization with volatility risk.
Most Recent Model Trading Indicators
We noted 2 weeks ago UK banks as the most attractive long trading sector. All but 2 of the 9 model trading attractive long indicators we have published have reached their avoid trading levels
The Alphabet (Aa2/AA), GOOGL 5 1/4 05/15/55, Standard Chartered (A3/BBB+), STANLN 5.244 05/13/31, HSBC (A3/A-) HSBC 5.24 05/13/31 all reached their avoid trading level on Tuesday
This morning the Model's top attractive short trading indicator is HCA (Baa3/BBB-) HCA 3 5/8 03/15/32 91/10Y . The model has designated the HCA (HCA) attractive short trading indicator several times in the past 2 years.
Monday Sample Trading Indicator and Credit Spread Movement
Since February 24, we've published 44 secondary and new-issue trading indicators from our model:
• 25 of those indicators have reached their avoid-trading level and tightened by (-10.9bp) on average
• The remaining 18 indicators credit spreads have tightened by (-2.21bp) on average.
• Across all 43 indicators, credit spreads are (-10.9bp) tighter.
Prior long/short trading Indicators
Of the 46 new-issue and secondary trading Indicators published (22 long and 24 short) that reached their avoid trading level, the average credit spread movement was (+/-5.6bp).
Of the 10 long indicators issued before February 22 that haven't yet hit the avoid-trading threshold:
• Four are BBB-rated and have widened by +12.7 bp on average since being indicated.
• They currently trade at 137.7 bp over the UST curve, with an 8.1-year duration.
• Our model projects an average spread tightening of -15. bp remaining.
• Six are single-A rated and have widened by +9.8 bp since being indicated.
• They now trade at 102.2 bp over the UST curve, with a 10.7-year duration.
• The trading model indicates an average spread tightening of -15 bp remains.
Earnings reports from this morning, yesterday and last week
MPLX (MPLX, Baa2/BBB)
• MPLX (MPLX) reported 1Q 2025 revenue growth of 9.8% and net income to unit holders up 12% YoY; much of increase came from higher pipeline throughput, in both crude oil and products logistics, tariff higher prices, and volumes in natural gas and NGL volumes and throughput fee rates.
• Financial Position: MPLX balance sheet debt continues to rise modestly. However, cash from operations and returns to unit holders are being financed through operations rather than balance sheet.
• Model Trading Indicators: Of the 24 Senior MPLX (MPLX) USD secondary bonds, the credit trading model sees 11 as overvalued and the MPLX 4 03/15/28 and the MPLX 5.4 04/01/35 as attractive short trading Indicators. The model does not see MPLX (MPLX) equity as attractive at last night's closing price.
Daimler Truck (DTRGR, A3/A-)
• Daimler Truck reported a disappointing 1Q with unit sales falling (-8%) and revenue falling 7%. Company guidance was far less volatile than several of the automakers with 2025 EBIT projections flat YoY and estimates of continued free cash flow. Company notes that North American market for heavy-duty trucks (Class 8) declined by 10% in the first quarter of 2025. The market for heavy-duty trucks in the EU30 region (European Union, United Kingdom, Switzerland, Norway) decreased by 15% compared to the prior year level.
• Financial Position: Daimler was cash flow positive by €1 billion in the quarter but continues to re-lever owing to customer financing needs.
• Model Trading Indicators: While Daimler has 20 USD secondary bonds in circulation, only the DTRGR 2 12/14/26 is overvalued and has very little downside owing to its 2026 maturity. Therefore, there are no attractive short trading DTRGR indicators. The model does not see DTR GY equity as an attractive short trading indicator at its current price this morning.
First Energy Sr Unsecured (FE, Baa3/BBB-)
• FE filed their 10-Q with revenue up 14% and reported earnings up 15% owing to implementation of base rate cases in New Jersey, West Virginia, and Pennsylvania; higher customer usage as a result of colder weather temperatures; and higher revenues from regulated capital investments that increased rate base.
• Financial Position: Net debt on the FE balance sheet continues to come down and now stands at $23 billion, while cash flow after dividends is flat.
• Model Trading Indicators: At current credit spreads, our trading model sees only the FE 4.85 07/15/47 as undervalued. The model also sees FE equity as attractive at last night's closing price.
Amren Sr Unsecured (AEE, Baa2/BBB)
• AEE filed their 10-Q with revenue up 36% and reported earnings up 100% owing to increased retail electric sales volumes at Ameren Missouri, primarily due to colder winter temperatures in 2025, and significantly higher distribution YoY. Revenue and income also had favorable comparisons in the absence in 2025 of an Ameren Missouri charge related to the resolution of outstanding claims in the NSR and Clean Air Act litigation associated with the Rush Island Energy Center.
• Financial Position: Net debt on the AEE balance sheet continues to rise to $19.5 billion, while cash flow after dividends is negative.
• Model Trading Indicators: AEE has 41 USD-denominated secondary bonds, but none have the trading liquidity that would generate an attractive short trading indicator. The trading model does see AEE equity as attractive at last night's closing price.
Bayer (BAYNGR, Baa2/BBB)
• Bayer reported flat 1Q 2025 revenue, (-7.5%) cash flow from operations, and a (-12%) YoY earnings result. Bayer was cash flow negative after investment in 1Q 2025. Note company pays its dividend in 2Q 2025, so there was no outflow to shareholders in 1Q.
• Financial Position: Bayer's total debt remains roughly flat QoQ and is €3 billion lower YoY.
• Model Trading Indicators: BAYNGR has 10 liquid USD secondary bonds, and our trading model sees 2 of them as attractive long Indicators. BAYNGR 4 5/8 06/25/38 and the BAYNGR 4 7/8 06/25/48 are two of the most attractive longs remaining in the credit model's trading/research universe.
Disclaimer - This report is not intended as, and does not constitute an offer, or a solicitation to buy or sell any securities or financial instruments. All data, levels, opinions, and representations herein are provided for informational purposes only and should not be relied upon for making investment decisions. Past performance is not indicative of future results. The authors of this report assume no liability for losses or damages arising from the use of this information. Investors should consult with a qualified financial advisor before making any investment decisions. The information in this report is based on sources believed to be reliable, but no guarantee is made as to its accuracy, completeness, or timeliness.